The National Foundation for Credit Counseling recently sought advice from 100 of its member directors for consumers to consider resolving to do in 2014.
While many families are still recovering from the economic recession, there are some common sense things you can do to get on the right financial track.
The following are the top 10 recommendations of agency directors:
1. Start saving: This was the top recommendation by far. If the last emergency need was paid for with a credit card, that’s a red flag. If a credit card payment is necessary to pay for an emergency, it’s not likely that the person using plastic will be able to pay the interest or possible fees that accompany such use. Unfortunately, the average consumer puts savings at the bottom of their list of New Year’s resolutions, putting them squarely at odds with the advice of experts.
2. Track everything you spend: Many people actually make enough to cover their expenses, but tend to “leak cash” simply because they don’t know where their money is going. Tracking every penny for 30 days can be a real eye-opener for most people and is the first step to controlling mindless spending. The easiest way I know to do the tracking is to maintain every receipt in an envelope on the car seat or in your purse or wallet. If a receipt for a small amount isn’t given, just jot it down on the envelope with date and purpose. At the end of each week, summarize where the money has gone and make adjustments where advisable.
3. Create a spending plan: Notice I didn’t mention the word “budget,” which many regard as something to be avoided. The great part of tracking spending and then creating a plan is it puts you in charge of your finances, not the reverse. Divide your monthly plan into logical parts, such as housing (mortgage or rent, insurance and taxes, if any); food (at home and eating out); auto (gasoline, license, repairs); medical and prescriptions; clothing; education; entertainment (cable, video rental, concerts, etc.) and miscellaneous. Be sure to put aside a 12th of annual expenses, such as auto license or insurance. It’s a good idea to estimate possible auto repairs, as well. And be sure to account for that all-important category: saving. Try the old “pay yourself first” strategy and make it a habit.
4. Get your credit report from all three credit bureaus: Review them for accuracy and address any errors, because your all-important credit score is based on the contents of your credit reports. Further, frequently reviewing your credit report is a good way to protect yourself against identity theft, as you’ll be able to spot any suspicious activity. Consumers are allowed one free credit report from each of the three bureaus every 12 months. You may want to get a report from one bureau on a quarterly basis, so you can track progress throughout the year. The reports are available from www.annualcreditreport.com.
5. Improve your credit score: Credit scores are vital to obtaining credit and obtaining it at the most favorable rates. The two most important things you can do to improve your score are to pay your bills on time and not use more than 30 percent of your available credit. To help you avoid paying late, create a cash-flow calendar listing all paydays and which bills are due to be paid from those funds.
6. Pay down debt: Money for debt reduction comes from living below your means. If you are living beyond your means, you will need to make adjustments. Taking on additional employment sounds tough, but the rewards are great when debt is gone along with the constant worry. In addition, you can start some serious savings and investment to meet your emergency and long-term goals.
7. Set goals: This could have been the first recommendation. When in financial distress, sometimes it’s hard to look past the next day, but making short- and long-term goals is the best way to determine where you want to be and how you are going to get there.
8. Plan for retirement: This is often neglected when money is tight. Tomorrow is coming, so plan for it today. Time is money’s best friend. No one ever regrets starting retirement savings early.
9. Make it a family affair: Make all financial decisions family ones, and your likelihood of success will increase dramatically. Talk about everything from the bills to the budget. The home is a great place to teach your children about financial issues, including the inevitable problems.
10. Reach out for help: Take action at the first sign of financial distress. Delaying only makes it harder to find a solution. Trained certified consumer credit counselors are waiting to help you. Why not sit down with a counselor and get your financial ducks in a row before trouble strikes?
If you’d like help with your New Year’s resolutions, call our office at 815-338-5757.
• Virginia Peschke is executive director of Consumer Credit Counseling Service of McHenry County in Woodstock.